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Opinion: why Russia may be dear to Deere

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Samuel Allen has seen the writing on the wall for farming. And noticed how much of it is inscribed in Cyrillic letters.

It was a good sign for Deere & Co investors that their chief executive designate joined President Barack Obama on a high-profile trade mission. There's no harm having contacts in high places.

It was even better that the mission took Mr Allen to Russia, despite the country's dismal reputation for turning investors' gold into base metals.

Governance questions

Sure, Russia has a debatable grasp on democracy, and an undeniably poor corporate governance record.

Just ask BP, the oil giant which has had no end of problems at a Russian joint venture. Or Telenor, ditto. Or Sweden's Ikea, which last month suspended investment in Russia. The list goes on.

But that does not mean the country should be ignored. Just as the risks look large, so do the rewards.

Russia is determined to become a grain superpower. Indeed, it has to if it is to remain a superpower at all, given the rate at which it is depleting its oil. (Russia is the second largest oil producer, but has only about 5% of global reserves.)

To raise grain production by about 50% to 135,000 tonnes a year in a decade or so, as the Kremlin wants, will require a huge investment in machinery.

Poorly stocked

The country's farmers operate less than three combines per 1,000 hectares of grain land, compared with four in the US, according to Sterne Agee, the broker. The comparisons are starker still for tractors. Yet Russia's growers have, arguably, narrower harvesting and sowing windows.

So just bringing machinery stocks to US levels implies an extra 50,000 combines. That's seven years' worth of homegrown production, if Russia was just to rely on its own machinery makers, before replacement harvesters, let alone tractors, are brought into the equation.

That would appear to leave a huge gap for foreign machinery firms to fill.

And these figures exclude new land. An estimated 40m-50m hectares of Russian arable land goes unfarmed.

Opportunity knocks

Mr Allen cannot afford to let an opportunity like this flow by without dipping in a toe, even if he finds conditions too uncomfortable to commit more to Russia than Deere already has.

Looking inward, and improving Deere's efficiency, is part of Mr Allen's challenge. But so is looking outwards.

Mature, efficient, Western farms do not hold the secret to finding extra food for the world.

That's the job of new agricultural frontiers, where Mr Allen needs to have Deere's green and yellow flag flying just as high as he wants.

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